|
Basis of Difference |
Balance of Trade (BOT) |
Balance of Payment (BOP) |
|
1. Definition |
It defined as difference
between export and import of
goods and services. |
It is flow of cash between
domestic country and all other
foreign countries. |
|
2. Formula |
BOT = Net Earning on Export |
BOP = Current Account + Capital |
|
|
- Net payment for imports |
Account
+ or - Balancing
item ( Errors and
omissions) |
|
3.Favourable or Unfavorable |
If export is more than import, at that time, BOT will be favorable. If import is more than export, at that time, BOT will be unfavorable |
Balance of Payment will be
favorable, if
you have surplus in current account for paying your all past loans in your capital account. Balance of
payment will be unfavorable, if you have current account deficit and you took more
loan from foreigners. |
|
4. Solution of Unfavorable Problem |
To Buy goods and
services
from domestic country. |
To stop taking
of loan from foreign countries. |
|
5. Factors |
a) cost of production
b)
availability of raw materials c) Exchange rate d) Prices of goods
manufactured at home |
a) Conditions of foreign lenders.
b)
Economic policy
of Govt. c) all the factors of BOT |
|
6. Meaning
of Debit and
Credit |
It shows debit and
credit of current account. Credit means total export of different goods and
services
and debit means total import
of goods and services in
current account |
Credit means to receipt and earning both current and capital account and
debit means total outflow of cash both current and
capital account and difference
between debit and credit will be
net balance of
payment. |